What are 9 unexpected costs of selling your home?

Ralph
00:00:00

Have you ever thought about selling your home? Maybe you been daydreaming about upgrading to a bigger place or downsizing now that the kids have moved out.

But here's a question that might make you pause. What if I told you there are hidden costs lurking in the shadows of that for sale sign?

These costs that could make or break your wallet, make your wallet weep, and your bank accounts shuddered. Stay tuned, because today we're diving into nine unexpected costs to selling your home that nobody wants to talk about.

And here's the thing, they could cost you thousands or even prevent you from selling your home. And let me tell you, some of these are going to shock you.

Narrator
00:00:42

Welcome to the Ask Ralph podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Jr.

Ralph
00:01:11

Let's take a quick look back at yesterday's show. We talked about what to do when you lose your wallet to protect yourself from identity theft.

And if you've been through that process, I'm going to tell you it's not fun. So I'm going to strongly encourage you to go back and listen to it.

Because the truth is, in todays digital age, protecting your identity is more crucial than ever, and the tips I share could save you a world of headaches down the road. Now, speaking of listener questions, I've got a great one here from Laura in Mobile, Alabama.

Laura writes, Ralph, I've been listening to your show for months now and its been such a blessing. Your advice has helped me get my finances in order and I'm finally debt free. No more living paycheck to paycheck. I am liberated from that bondage now.

My husband and I are thinking about selling our home to move closer to our grandkids. We thought it would be a straightforward process, but we are hearing whispers about hidden costs. Can you shed some light on this?

What should we be prepared for? Laura, first of all, congratulations on becoming debt free.

That is a huge accomplishment, and I am completely thrilled that our show has played a part in your journey. But you take the credit, not me.

Your question about selling your home is spot on, and it's something many of us don't think about until we're knee deep in the process. And before we get started, I want to remind you this show is all about answering your questions. That's why it's called ask Ralph, after all.

So if you've got a burning question about finances or faith or how the two intersect, head over to justaskralph.com and submit your questions. And who knows, you might hear your question answered on a future episode.

Now, Laura's question about the unexpected cost of selling a home ties in perfectly with the Bible verse I found for today.

So let's turn to proverbs, chapter 24, verse 27 and it says this prepare your work outside, get everything ready for your field, and after that, build your house. This first speaks to the importance of preparation and planning. That's what it talks about.

And this is especially important when it comes to significant life changes like selling your home. Listen dad, is a significant life change.

So just as a farmer prepares his field before planting, we've got to prepare ourselves for the costs and challenges that come with selling a home. Let me start by sharing some results of a poll that was taken a few years ago. I'm going to put a link to this article in the show notes.

And this was a poll was conducted by Ipsos and it was done on the behalf of Zillow. And here's the thing. It talks about stress, right?

And it says more than three quarters of Americans who have sold their home in the past three years say the experience of selling was stressful for them, 77% said that was the highest thing for them. There's only one thing higher and that was at 78%. And guess what? That was going through a relationship breakup. So think about that for a second.

2nd only to going through a relationship breakup. Now, they said selling the home is rated as being more stressful than buying a new home. 72% said that buying a new home was stressful.

Planning for a wedding was what 60% of the people said. Getting fired, which I thought was hilarious, was 58%.

Becoming a parent was tied for that at 58%, teaching a teenager to drive ranked at 53% and potty training a child at 47%. So we can clearly see that this is a stressful event.

Let me see what we can do to turn down that stress a bit and get into what are the nine unexpected costs of selling your home. And I want you to buckle up because some of these might surprise you. But again, it's wacky Wednesday, so that's what we do.

Let me start first by talking about a presale home inspection. Now, many sellers don't realize they might need to pay for a presale home inspection, and these can cost anywhere from $300 to $500.

But let me tell you, this is a smart investment. You might ask, why is that? It helps you identify and address potential issues before buyers discover them.

It's better to have that knowledge yourself than when the buyer comes back to you and says, hey, did you know? Let's look at number two. And that's home staging. We are in a very competitive real estate market, and staging your home can make a huge difference.

But you've got to think about what is that going to cost? Now, when I did some research, I found out that typically this staging can cost from $2000 to $3,500.

Now, of course, that depends on the size of your home and how much work needs to be done, but that's something else you might want to consider. Let's look at number three. We kind of alluded to this in number one, and that's those unexpected repairs.

Remember that pre sale inspection I mentioned? Well, it might uncover some issues that need fixing. My grandfather used to say that, boy, this needs fixing. And let me tell you about a story.

I had a client one time, they had their house on the market. They didn't do that pre sale inspection, but as part of the negotiation process, they built in an inspection that the buyer was going to have done.

And when they did the inspection, they discovered that the entire electrical system needed to be updated to meet the current code. And let me just tell you, that was a $7,000 surprise that they had in budget for, and it almost sunk the whole deal.

Let's move on to number four, and that's landscaping and curb appeal. I don't know about you, but when I'm looking for real estate, that first impression matters.

I've been out looking at homes and I went past the home and it looked terrible from the curb, and I just kept on driving. And like I said, first impressions matter. And that means sprucing up your home's exterior, and you're going to have to pay for that.

And this could include anything from a fresh coat of paint to new plants and mulch. But I'm going to tell you, I would budget at least $1,500 for this. Number five, professional deep cleaning.

Truth is, some people's impression of clean is different from others. And if you fall into that category, I'm going to definitely recommend you do this professional deep cleaning.

So before you list your home, you're going to want it to be spotless, and I mean spotless from top to bottom. So what is that going to cost? Professional deep clean can cost between 200 and $400. Again, that depends on the size of your home.

Well, now let's move on to number six, and that's real estate commissions. And this is a big one. A lot of people forget about this and they don't factor it in when they're doing their budget.

Yeah, I'll talk about that in a minute. But real estate commissions typically run about five to 6% of the sales price. So think about that.

If you're selling a $300,000 home, that's $15 to $18,000. Now, there are some new rules I'm not going to spend a lot of time talking about.

But under these new rules, sellers are no longer required to offer compensation to the buyer's agent.

And this is disrupting the traditional five to 6% commission split, because now the seller in the past usually covers both the listing and the buyer's agent's fees. But now, and here's the new part, deals now require what they call an explicit agreement through what's called a buyer agency agreement, or a BAA.

And that's a legal contract that defines what a buyer's agent will earn independent of what the seller offers. Now, this, believe it or not, this is something reasonably new back in August. This agreement is required before a buyer even tours a home.

And see, here's the thing that it really does. These new changes, which reclassify a buyer's agent's compensation as a concession. And that's the key to this.

What they're saying in this regulation, this legislation, is they're reclassifying the buyer's agent's compensation away from commissions and to a concession. And what that does, what they've seen so far. I did some research online. It's making the negotiations a little bit more complicated.

And sellers are feeling pressured to offer these concessions to attract buyers, especially in those competitive markets. So you just got to be aware of that.

It could add a layer of complexity, which is going to make it harder for buyers and their agents to quickly assess potential deals. Number seven, closing costs. I don't know how many times clients have come to me and said, ralph, I had no idea about these closing costs.

And as the seller, you're typically responsible for those closing costs. And this could be anywhere from one to 3% of the sales price. This includes things like transfer taxes, title insurance, and attorney fees.

So you want to be aware of those things. Talk to your agent about that. Number eight. And here's one you don't want to forget about. Once you sell your home, you got to move.

So you got to factor in some moving expenses. And trust me, been through this a few times. Between hiring movers, buying packing supplies.

I felt like every time I bought another batch of boxes, I had to go get more packing tape and bubble wrap. And maybe you're going to have to rent a storage unit. And this can easily cost you from one to $5,000.

Look, it can cost you three or four times that, depending upon how much stuff you've got and whether you're moving short or across the country. If you're staging your home, you may need to move a lot of your stuff out, because I've heard realtors say we got to declutter this space.

And last but not least, number nine, and that's capital gains taxes. If your home is appreciated significantly since you bought it, in other words, the value has increased.

You might just owe some capital gains taxes on that profit, but there are exceptions. But it's something you've got to be aware of and plan for at the front end.

I did a show on this very topic back on January 18 of this year, and I want to put a link in the show notes. Well, now, I promised you I'd share some stories about some of these unexpected costs, and I got these from some realtor clients.

And, boy, I've got some doozies for you. And I had one client, she told me this. Her name was Lisa. Now, Lisa was selling her beautiful Victorian home as a beautiful spot.

Everything was going smoothly. She listed the property. She got a contract the first day. Everything was fantastic until she got to that buyers home inspection.

And when that home inspector looked at her house, he thought it was charming as well. But he discovered those charming original wood gutters were completely rotted through.

And he said to the buyers, he said, look, you're going to need to have them replaced. So guess what the buyers did? They insisted on having them replaced with modern, efficient gutters before closing.

And Lisa hadn't even considered that she had done the exterior painting. She did the curb appeal thing. She did the mulching and all that kind of stuff. But she didn't even think about the gutters.

And it set her back almost four grand and almost broke the deal. Well, let me tell you another story. Now, it was Tom and Barbara. There's a lovely couple selling their home. They had been there for 30 years.

And here's the thing that was amazing about this situation. All of a sudden, they got a request from the buyers that the sellers pay for what they called a wildlife removal service.

When they did the home inspection. Apparently, a family of raccoons had taken up residence in the attic. And this buyer couple, they did not want raccoons in their attic.

And I can't blame them. I don't want raccoons in my attic. But it was an unexpected cost, and it cost them $1,200 just to get rid of the Raccoon family.

And then another $800 to seal up the entry point so that the critters couldn't come back. Wildlife renewable services. It was an unexpected cost, and it cost my seller $2,000. But here's the craziest story, and this is from my client, Mark.

He was selling his lakefront property. I'm talking about a beautiful place. It was a place of refuge from him. He had this big lake on it, beautiful spot.

Had a nice dock out on the lake, and everything was going great. He passed the home inspection, all that. They're doing their final walk through the day before settlement.

They walk out on the dock because the truth is, the buyers really love this dock. They could picture themselves sitting out there in their chairs, just watching the sun go down.

And as they're walking back from sitting on the dock, they notice some loose boards. And they said to Mark, they said, hey, you know what? We need you to get this repaired.

But not only do we want it repaired, we want it professionally inspected and certified for safety. I guess they had some little kids, and they were worried about one of the kids tripping.

But the problem is, this last minute request cost mark nearly $3,000. And because it was the day before, it just about derailed the sale. Now, in that case, they had a signed agreement. They put the money in escrow.

He said, okay, I'll put $3,000 in escrow. That will cover that. So what do these stories really highlight?

Well, they highlight an important point, and that's when it comes to selling your home, you've got to expect the unexpected. And it's crucial that you have a financial cushion to handle these surprise costs that can pop up during the selling process. These things happen.

Now, you might be thinking, Ralph, this all sounds overwhelming. I thought I was just going to sell my house. How can I possibly be prepared for these unexpected costs? You know me.

I've got some actionable steps for you. The first one, start saving early. As soon as you even think about selling your home, start setting aside some money for unexpected costs.

Now, here's what I'm going to tell you to do. I'm going to tell you to aim for about 3% of your expected sales price that way, you've got that.

So in that $300,000 model, I would have you set aside about $9,000 and I hope you don't have to spend it. But if you've got that saved and you're going to be on your way to eliminating a problem. And the second thing, get a pre listing inspection.

I'm not talking about the one that the buyer is going to get.

I'm talking about one you get, have an inspector come out and tear your place apart because they are going to find and identify some potential deal breakers. And then you have the opportunity to fix them or get them set up before you even put the property on the market. It can save you a ton of headache.

Another thing I'm going to recommend you do, and you want to talk to a real estate in your area and research your local market because this could get you a better idea of what buyers typically requesting and it can also help you anticipate and budget for potential demands. Yup, there goes Ralph talking about those budgets again. But listen, it's all about budgeting. It's all about planning.

And you got to plan for the unexpected. That's why I said set aside that money. Now, another thing you might want to consider is a home warranty.

And I see a lot of these, these home warranties offer some buyers can provide some peace of mind and it could potentially head off requests for cost repairs. If you say at the front end, listen, when you buy this home, as part of this home purchase, we're gonna provide a home warranty.

If I'm the buyer, I'm saying, okay, that's cool. If we find something down the road, I don't have to be so worried about it. Now.

I actually did a show about this back on July 1 of this year about home warranties. And I'll put a link in the show notes. I encourage you to check it out if you haven't already.

And number five, you gotta be prepared to negotiate because sometimes you may need to split unexpected costs with the buyer, but you've got to be flexible and keep your eye on the big picture. Now look, I'm going to tell you a personal story. My mom tried to sell her house. She passed away last year.

But I want to say it was like seven or eight years ago. She had a two story house and she's getting older. And she said, Ralph, she said, I'm thinking about selling my house and going down to a single floor.

And here's the problem.

She walked away from a deal to sell her house over something dumb I don't remember what it was, some small repair, but she said, ralph, it's just the principle of the matter. I'm just not going to do it. So you've got to be prepared to negotiate, you got to be flexible.

And in my mom's case, the problem was then the market went down and she was stuck. And so what I'm going to say here is you've got to look at the big picture and think of the overall goal.

And remember this, selling a home is stressful. It's a big financial decision. And yes, it's okay to feel a bit overwhelmed. And that's where I can come in.

If you're thinking about selling your home and you want some personalized advice on how to prepare financially, now, I'm not in a realtor. I'm going to suggest that you talk to a realtor. But if you're looking at the financial side of that, you want to know how to prepare for that sale.

You want to know what the capital gains exposure are. You want to know what things to be prepared for financially. Those are all things I can help you with, and I'd love to help you with.

And maybe you're feeling a bit overwhelmed in general with your financial situation, or you simply want to ensure you're on the right track. We live in tough times right now. Again, I would love to help you.

The best way for me to help you is if you schedule an appointment with me by going to askralph.com. When you go to that website, you'll see a banner at the top and it says, book a call with Ralph.

You click on that and it'll walk you through the process. And what I will do, I will work with you. And my goal is to help you move from that feeling of stress and feeling of overwhelm.

Maybe you're feeling like you're living paycheck to paycheck. Maybe you feel like you're taking three step forward only to take four steps back.

My goal is to help you achieve that freedom from that financial bondage that so many of us find ourselves into. I want to work with you to help you improve your personal finances. And you might be thinking, Ralph, that's great.

My personal finances are great, but my business is struggling. I can help you with that, too. I can help you put together a plan to grow your business. Maybe you need better accounting systems for your business.

I can help you achieve all your financial goals.

And what I do there is I'm going to create a personalized plan just for you not some cookie cutter approach of take these three steps, do these four things. It's going to be a personalized plan I'm developing just for you. Now, I do charge $150 consultation fee because I can't work for free.

But here's the deal. Here's my guarantee for you. I will refund that to you if we aren't able to create a personalized plan that exceeds your expectations.

It's really that simple. So as we wrap up today, let's recap what we learned. Number one thing we learned was selling a home comes with many unexpected costs.

From that pre sale inspection, suppliers, repairs talked about how that is a big time stressful, only second to a relationship breakup. Second thing, it's crucial to budget for these costs. Yes, Ralph said budgeting.

I think I said it four or five times now, but I think you're getting the point. So I recommended you set aside 3% of your expected sale price in that bucket, that savings plan.

Number three, be prepared for unusual requests from buyers.

We talked about some of the more crazy ones, like the raccoons in the attic or the deck that needed to be the dock that needed to be fixed, or maybe those wood gutters. We talked about curb appeal. That's a big one, too.

And really, to sum it all up, it really comes down to two words, and that's planning and preparation. And this comes right from the Bible, proverbs 24 27. It says they are the key to a successful home sale.

Now, tomorrow I'm going to be diving into another important financial topic. It's our tax talk Thursday and we're going to be talking about what is the tax impact of getting a lump sum versus annual payout of retirement?

This is a question that affects many of us. I get this question a lot of times through my email or when clients come in and it really affects. Those are in our golden years.

So be sure to tune in and remember this. I know you can feel it in my voice. My passion is to help you achieve financial success. That's my goal. I want you to live out your dreams.

I want you to do that while growing in your faith. Because I know together, working together, we can master your finances from a Christian perspective.

So as I always say, when I close, stay financially savvy and God bless you.

Narrator
00:20:02

Thank you for joining us on the Ask Ralph podcast. And with a simple click to subscribe, we'll invite you back to our next episode. And remember, financial issues don't have to be complicated.

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